19th July 2018
A few weeks ago now Amazon announced that it was purchasing the US online pharmacy called “PillPack”. Since then it’s also been announced that Amazon is working with numerous hospitals on what you might call “prescribed over the counter items on discharge”. Based on media reports a good example might be if a new mother needs products for her newborn then a clinician generated/recommended “discharge order” can be raised for Prime delivery of nappies and other important items for new families.
Anyway, this has sent shivers down the backs of a lot of people in the UK’s health sector and yet there are quite a few who are excited to see how the world’s most powerful consumer-powered company can impact the supply side of healthcare in the US.
No-one knows the answers, and we don’t profess to know either, but lots of people in the health sector, working in/with/for the NHS have opinions, and we’d like to share ours. You might wholly reject, agree in parts or totally agree to all we say. Which ever it is, thanks again for stopping by our blog.
So if we think about the UK’s prescription market, or more specifically England’s model, it operates with a market cap. The Government calls this cap the “Global Sum” which was £2.592bn in 17/18 fiscal year. There were a number of cuts to this over previous years: relative to the 15/16 year’s budget, these drops have been 4%, 12% and then a 7.5% drop. Another was announced only the other week.
From the Global Sum, pharmacies (online or high street) are paid for essential and advanced services. Dispensing is of course an essential service and pharmacy’s make their money from performing these services through “fees & allowances” and also the “retained buying margin” which is the amount of profit on procuring drugs to dispense that they are allowed to keep.
The reason we mention this is that the number of prescription items is going up but the Global Sum is decreasing – more prescriptions are dispensed for less. That means that to make money in this industry a pharmacy would need to dispense more on less resource/overheads.
From Amazon’s perspective the US health market is much more complex and permits different levels of advertising; allows for a greater variety of value-added services and also there are more ultimate buyers. In the UK the ultimate buyer is the Government who has a 3-4yr record at present of decreasing funding. But then again, Amazon has a record of massive efficiency which is needed to make money in UK pharmacy.
Amazon is a company of growth. It enters markets to dominate and expand, and not just to be a part of them. Take the book and DVD markets where they entered and began to dominate, but also they moved with consumer demand and bought companies that ultimately enabled products like the Kindle or Prime Video. Amazon continues to grow these markets massively.
However, on one hand the UK prescriptions market is capped and although Amazon could enter it, dominate it and offer a different sort of service that lots might welcome, they would always be competing against a single buyer trying to pay less for more. They can’t sell a new service for more money as the Global Sum is, well, the Global Sum, but they could demonstrate the ultimate efficiency from their experiences in e-commerce supply and logistics. However many would argue that this improvement would have to be at the expense of clinical input, albeit some would further argue that the point of clinical input in supply is what can be a point of failure in a “perfect” digitised and robotic process.
On the other hand though this is all very exciting because Amazon is the definition of consumerisation as we discussed above, and that is ultimately what is happening to healthcare, and very much the more supply-side of healthcare. So as onlookers, it will be very exciting to see where Amazon takes an industry, albeit in the US, that is only just beginning the digital-consumerisation journey, where finance and e-commerce have already set the standard.